For decades, many in the world of finance have taken the traditional model of philanthropy a step further through what’s commonly called “impact investing.” Simply put, impact investing is based on a desire to make money and do good at the same time.
As we explained in a previous blog, there are countless approaches to impact investing, and each depends on a variety of factors, including your resource level, your risk tolerance, your values and your goals. To simplify this vast topic, we broke down impact investing strategies into a spectrum, with direct strategies on one end, and indirect strategies on the other. Take a look here.
The best example of an indirect strategy is called ESG investing. ESG stands for environmental (what does a company do—or not do—to protect the environment?), social (how well does a company treat their employees, customers, suppliers, and society at large?) and governance (how do corporate leaders run their business and relate to their stakeholders?). It involves individual investors buying shares of a mutual fund and essentially putting their trust in a number of intermediaries to use their money for good. In exchange, the investment is expected to grow over time. For a more detailed look at what’s actually behind the acronym, check out our previous blog.
ESG investing has gained significant traction, both in terms of capital flow and influence, over the past few years. The shift towards ESG investing is indicative of the changing sentiment amongst investors and financial institutions towards environmental and social responsibility. The multifaceted approach to ESG investing seeks to use research, financial support, and policy development to increase pressure on the private sector to become more equitable and sustainable. Through this strategy, companies are encouraged to make decisions that are beneficial for society by considering all stakeholders in their decision-making process, including employees, communities and the environment
Additionally, investing in ESG funds influences the dialogue between mutual fund companies and the companies they hold a stake in. This engagement can help shape the socio-economic landscape by encouraging corporations to do their part in achieving equitability and sustainability goals. ESG investing is not just about how much return an investor can expect from their investment, but about holding companies accountable for making responsible decisions for the greater good. Through dialogues with mutual fund companies, corporations can become more aware of the need for sustainability initiatives, make use of renewable energy sources, reduce carbon emissions, promote equity and diversity in the workplace, provide transparent reporting on environmental impacts, ensure ethical sourcing practices, etc. Not only does this dialogue help companies stay competitive, but it also forces them to protect people, planet, and profits. As such, ESG investing has immense potential to create positive social change beyond the economic benefits. It is this type of impact that makes ESG investing so attractive to many investors seeking a long-term approach to creating a better future. Learn more here.
Impact Investing with The Humphreys Group
There has long been an argument that impact investing requires a “give up” on the performance side of the equation, but the numbers simply don’t bear that out. The Humphreys Group has invested in ESG mutual funds for 20+ years and we are excited to continue to evolve our approach to ESG investing as the “opportunity set” continues to expand and a wider range of funds are made available.